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FTSE 100 companies paid 17.5 billion into their defined-benefit pension schemes in 2009 to tackle deficits

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Britain's biggest companies pumped record amounts into their pension schemes last year in an effort to plug gaping pension black holes.

According to the Accounting for Pensions report from Lane Clark and Peacock (LCP), FTSE 100 companies paid an unprecedented £17.5 billion into their defined-benefit (DB) schemes in 2009, 50% more than the previous year.

The influx helped drive the aggregate FTSE 100 pensions deficit down to £51 billion, nearly half the record £96 billion of a year earlier. Increases in asset values following strong investment returns were another factor behind the lower deficit.

The largest contribution was by Royal Dutch Shell at £3.3 billion, up more than £2.5 billion on contributions paid over the previous year. Lloyds Banking Group, Royal Bank of Scotland and Unilever also paid more than £1 billion into their defined benefit schemes. 

Eight companies – BAE Systems, British Airways, Invensys, Lloyds Banking Group, Morrisons, Rolls-Royce, Serco and Wolseley – all paid more to their pension schemes than they did to their shareholders in dividends.

The report shows an increasing number of companies are using alternatives to cash funding as a way of bridging the gap between the amounts demanded by trustees and the sums that companies are willing and able to pay.  Examples include Diageo using maturing whisky as collateral, and M&S, Sainsbury’s, Tesco and Whitbread using property transactions.

And companies have upped their assumptions of how long pension scheme members will live, adding another £9 billion to balance sheet liabilities as at the end of June.  

Bob Scott, partner at LCP, said: "In the wake of the financial crisis, pension scheme trustees have sought more money from their sponsoring companies to fund soaring pension deficits, leading to a record level of contributions last year.  While this is reassuring for scheme members, such increases in contributions reduce the scope for companies to pay dividends and to invest in their businesses.

"We have already seen a number of companies modifying their schemes to reduce ongoing pension costs ­– in some cases closing their schemes altogether ­– and this trend may be accelerated from 2012 as it becomes compulsory for companies to enrol all employees in a pension scheme and to offer a minimum level of contribution or benefit accrual."